About Those Presidential Promises

Over the past three years, President Barack Obama made many promises to the American people about his health care plan. Among other things, he said it would reduce the federal budget deficit in coming years, promote better quality care and improve access to physicians.

But two promises stood out in the sales pitch because they were aimed at assuaging the deepest fears of a broad cross-section of the electorate: those who already have good health insurance today.

First, during the presidential campaign, Obama promised on numerous occasions that families with existing coverage would see their annual premiums fall, on average, by $2,500 per household. Jason Furman, an adviser to candidate Obama and now an economic aide in the White House, even said that the Obama campaign team believed this level of premium savings could be fully achieved, or nearly so, by the end of an Obama first term.

Second, throughout the campaign and many times since taking office, the president has promised to let Americans stay with the health insurance plans they are enrolled in today if they want to. In other words, the changes he favors in health care arrangements would not force anyone out of something they find entirely satisfactory.

These promises were not throwaway lines. They were often repeated because they were instrumental in making the case for the legislation.

The truth is that the vast majority of working-age Americans and their families find the coverage they have today to be more than acceptable. Yes, they see problems in health care that need fixing, which is why they are inclined to favor some kind of reform. But that doesn’t mean they don’t like their own plans, because most often they do. And why shouldn’t they? In the main, job-based insurance is fairly generous, with low cost-sharing and expansive coverage. Moreover, it usually provides access to the best doctors and hospitals in town. Firms often have little choice but to offer such coverage in order to attract the kind of workers they need to compete.

Consequently, there was very little Obama could do to make health care better for these people, and much he could do to make matters worse. Which is why he promised them that his overhaul would essentially leave them alone – and cut their costs. What’s not to like about that?

The problem, of course, is that the reality of the new law differs markedly from what was promised – something that is becoming increasingly clear by the day.

A recent story in the New York Times reported that employee benefit professionals expect the health law’s new insurance requirements will add 2 to 3 percent to job-based premium costs next year. One way or another, firms will pass on these added costs to their workers, in higher premiums, higher cost-sharing requirements or reduced cash wages. With the cost of family coverage at about $14,000 per year, that means the new law will cost households $400 or more in 2011. And that doesn’t yet account for the new taxes on the health sector that will get passed on to consumers, or the large premium increases expected to be imposed on younger and healthier people from the more sweeping insurance changes coming in 2014.

The administration and its allies argue that the other provisions of the bill will somehow bring about offsetting cost reductions too. But how?

The two main cost-cutting ideas were so violently opposed by congressional Democrats that they don’t kick in for many years. The tax on “high-cost” plans was delayed until 2018, and the Independent Payment Advisory Board won’t be issuing binding recommendations until 2015.

In the meantime, the only plausible cost-cutting ideas are the “delivery system changes” promoted through Medicare. The law’s proponents are especially keen on the potential of Accountable Care Organizations.

Under the new law, ACOs are a concept to be tested, starting in Medicare. The hope is that they will induce physicians and hospitals to practice less expensive managed care through payment incentives. But it’s far from certain that the provider community will embrace them, given the inevitable red-tape that comes with government-initiated “reforms.” Moreover, Medicare’s enrollees may rebel when they find out that the test allows the assignment of Medicare patients to ACO networks without their consent or even their knowledge. Banking on big savings from something with so many question marks and implausible assumptions is wishful thinking in the extreme. At best, it will be many years before ACOs make a difference, and there’s a good chance they never will at all.

In a nod toward the other key presidential promise – that you can keep what you have today – the new law includes a provision that allows “grandfathered” plans to remain in place even as new sweeping insurance regulations impose requirements, and costs, on other insurance products. But the Department of Health and Human Services has wide discretion to define what constitutes a qualified grandfathered plan under the law. And last week, HHS Secretary Kathleen Sebelius used that discretion to essentially make it impossible for most job-based plans to qualify for the designation. Small changes in benefits and cost-sharing — the kinds of changes most employers are forced to make every year to address changing circumstances — will disqualify those plans from the grandfather designation. That means virtually all job-based health insurance will be forced to comply with the federal government’s new regulatory requirements in just two or three years — something the administration has all but admitted was their intention all along.

The president and his team understood early on that they could not pass a sweeping health care bill without promising those with good insurance that, at a minimum, their coverage wouldn’t be harmed and their costs would not go up. Despite the relentless sales pitch, there was always a lot of skepticism among voters that such a government-heavy plan would leave them alone and be cost-free. Now, of course, their skepticism is being validated. Yes, the bill has passed. But a price will be paid for muscling it through to passage based on promises that are being broken just a few months after enactment.